Buy to let tenants Central Housing Group

Policy pitch for Buy to let tenants

BtL landlords would not pay capital gains tax when selling to buy to let tenants who have lived in a property for three years or more.

A new policy pitch could clear the way for buy to let tenants to purchase properties off landlords through a scheme dubbed Chance to Buy.

Under the plan, BtL landlords would not pay capital gains tax when selling to buy to let tenants who have lived in a property for three years or more.

Published today (Oct 8) by Tory think tank Onward, the policy paper pitches:

Existing buy-to-let properties as eligible for 100% capital gains tax relief if the property is sold to a sitting tenant who has lived there for three years or more.
The gain from this tax relief being split evenly between the landlord and the tenant, giving the landlord a windfall when they sell and the tenant thousands of pounds towards their mortgage deposit.
The paying for this policy by tightening other tax reliefs for buy-to-let investors, including reducing the Private Residence Relief period from 18 months to six months and abolishing Lettings Relief of up to £40,000.
The Residential Landlords Association (RLA) welcoming the prospect of “more positive taxation”, but called Onward out over landlords disinvesting from the sector.

“With the demand for private rented homes showing no signs of abating, and the Institute for Fiscal Studies today warning of the difficulties many young people have affording a home of their own, to choke off the supply of rental homes would leave many young people stranded and continuing to rely on the home of mum and dad for a place to live,” said RLA policy director David Smith.

“The Chancellor should use his budget to scrap the stamp duty levy on additional properties where landlords are prepared to invest in property adding to the net supply of homes.

“This could include bringing empty homes back into use, new build properties or converting larger properties into smaller, more affordable units.

“To tax new housing supply given the current housing crisis we face is simply ludicrous,” Smith said.

Onward’s modelling estimates that 88,000 households would take up the relief each year, meaning nearly half a million households could benefit over five years.

Accounting for multiple-person households, this would support the transition of a million people from the private rented sector into home ownership by 2023.

The average gain per property would be £15,000, meaning the average first time buyer could expect to benefit by £7,500.

Because the gain is affected by property prices and their historical growth, this rises substantially in some parts of the country, with the average buying tenant in London receiving £19,500 under the scheme.

If the government wanted to go further to incentivise longer-term tenancies, Onward argues that they could make other allowances, such as Wear and Tear Allowance, conditional on the properties being offered on a tenancy agreement of three years or more.

Changes could be introduced alongside or instead of the government’s proposed introduction of fixed three-year tenancies for everyone, the report says.

The report comes amid growing political interest in the changing nature of Britain’s private rented sector, with Ministers recently consulting on proposals to bring in mandatory three-year tenancies.

In the last two decades, the private rented sector has doubled in size, with more than 20% of homes, or 4.7 million households, now rented privately.

The average length of residence in the private rented sector is 3.9 years.

In 2016-17, half of renters had lived in private rented accommodation for more than five years, compared to fewer than a fifth in 2008-09.

Households pay a greater proportion of their living costs towards rent per month than previous generations.

From the 1960s to the early 1980s private renters spent on average around 10% of their income on rent in most of the country and around 15% in London.

Those figures have increased to over 30% and nearly 40% respectively.

Surveys suggest nine in 10 people prefer home ownership over renting. 65% of 18–40-year-olds who currently do not own a home hope to do so one day.

This has considerable political implications.

Research shows the political challenge facing the Tories amongst private renters, including in marginal seats.

According to Ipsos Mori, private renters were significantly more likely to vote Labour (54%) than Tory (31%) at the last election and Labour’s lead amongst private renters grew by 12 points.

Recent polling for Shelter showed Tories trail Labour by an average 22 points amongst private renters in the 60 most marginal constituencies – 61% of voters in those seats do not have confidence in the government’s housing offer.

Onward’s research shows that by 2022, there will only be 88 parliamentary seats where homeowners comprise more than 70% of all homes – down from 330 in 2001.

See details of our Guaranteed Rent Scheme here

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